Until the summer of last year Egypt’s reserves were on the slide. Then Gulf states decided to do something about it.
Since the ouster of Islamist president Mohamed Morsi, Gulf countries, with the exception of Qatar, have been offering financial support and pledging investments to Egypt to spur a desperately needed economic recovery.
Shortly after Morsi’s removal on 3 July 2013, the United Arab Emirates, Saudi Arabia and Kuwait showered Egypt with a combined $12 billion aid package to support the country’s ailing economy. While Saudi Arabia pledged $5 billion, the UAE and Kuwait allocated $3 billion and $4 billion respectively. Thanks to the money, Egypt’s foreign reserves, which have been depleting since 2011 when Hosni Mubarak was ousted as president following a nationwide uprising, jumped from $14.9 billion at the end of June 2013 to $18.9 billion at the end of July 2013, the highest value since November 2011.
Before 30 June 2013 Egypt’s reserves were on the slide, reaching a critical level that could cover imports for only three months. However, Egypt’s credit rating was upgraded for the first time since the 25 January 2011 Revolution. In November last year, Standard & Poor’s (S&P), the international credit-rating agency, raised Egypt’s long and short-term foreign and local currency sovereign credit ratings from CCC+/C to B-/B with a stable outlook. The agency said the upgrade came on the back of the generous aid it received from rich Arab states, which was expected to ease external financing pressures.
The Gulf aid package includes $6 billion in interest-free deposits at the Central Bank of Egypt, $3 billion in grants and $3 billion in petroleum products.
Due to the pressing energy shortages Egypt is currently facing, the Gulf has vowed to continue supplying Egypt with petroleum products until August 2014 to help it meet the soaring summer demand.
In March, the Kuwaiti government said that it will supply Egypt with 85,000 barrels of oil daily and 1.5 million tonnes of fuel for three years as part of a newly agreed commercial deal between the two countries. The supplies would be delivered by the end of 2016, with both countries studying the possibility of Kuwait supplying cooking gas and fuel oil (mazut) to Egypt as well.
The UAE stepped up its support after it signed an additional $4.9 billion aid agreement with Egypt which included a $1 billion grant while the rest of the Gulf was set to fund development projects by contributing LE20 billion to the government’s second stimulus package which aims at breathing life into the struggling economy.
The stimulus package, announced by the Egyptian government in February, includes building 50,000 residential units, establishing 25 wheat silos, the completion of sanitation projects, building 100 schools and the provision of 600 public buses.
Furthermore, Arabtec, Dubai’s largest listed construction firm, was contracted by the Egyptian Armed Forces to build one million affordable housing units nationwide in a LE280 billion deal. The accord, singed in March, covers 160 million square metres across 13 sites nationwide, including Cairo, Alexandria, Menoufiya, Fayoum and other Upper Egyptian governorates.
A number of major UAE companies have been tackling investment opportunities in Egypt. UAE retail developer Majid Al-Futtaim stated that his company would expand its investments in Egypt by $2.3 billion over the next five years as it plans to build four shopping malls and 32 hypermarkets, while Emmar, a leading real estate company in the UAE, signed a deal with the Ministry of Defence in mid-February to invest a further LE6 billion in its uptown Cairo project.